October, 1995

Re: Motion of AT&T Corporation to be Reclassified as a Non-Dominant Carrier

Today, in another substantial stride down a deregulatory path, the Commission declares AT&T to be "non-dominant." Once again, increased competition is the basis for decreased regulation.

Sixteen years ago, as long distance competition began to mature and bear fruit, the Commission began the Competitive Carrier rulemaking. The primary purpose of this proceeding was to calibrate our requirements to market conditions, so that interexchange carriers could be freed of unnecessary governmental interference and agency resources could be deployed more efficiently. Over the years, rules affecting authorization for new construction, tariff filing periods, pricing justifications, and the like have been substantially eased for what were once called the "other common carriers." But, ever since the outset of Competitive Carrier, AT&T has been labeled the "dominant carrier." Time has passed, and conditions have changed. So, too, must the Commission's response.

AT&T was first characterized as dominant before its divestiture of 22 operating companies, with their control over local telephone bottlenecks in communities from coast to coast. Before the divested companies and other local exchange carriers implemented equal access, so that MCI, Sprint, and others could enjoy interconnections that were equal in type, quality, and price to those which were available to AT&T. And before 800 number portability enabled AT&T's toll-free service customers to change carriers without having to change telephone numbers.

Over the years since Competitive Carrier was initiated, the market for interexchange services has been transformed. Today, virtually all consumers have the opportunity to choose from four or more primary interexchange carriers for 1-plus dialing. AT&T's market share is now closer to 60 percent than 90 percent. Tens of millions of consumers change their interexchange carriers each year. MCI, Sprint, and lesser carriers have the capacity to handle a substantial portion of the traffic currently carried by AT&T -- either immediately or in relatively short order.

The Commission has not ignored these market changes; as competition has grown, the Commission has accommodated AT&T with increased freedoms. In 1985, the Commission eliminated the requirement that AT&T market its enhanced services and customer-premises equipment through a separate subsidiary. In 1989, the Commission freed AT&T from rate- of-return regulation and instead allowed it to operate under price caps. Over the past few years, various AT&T services have been taken out from under price caps, and tariffing requirements have been further streamlined.

Now, based on our present assessment of the overall market for domestic, interstate, interexchange services, it is time to take the next logical step.

Today's ruling will have significant consequences. Residential long distance service, the only service remaining under price caps, will be removed from price cap regulation. Tariff changes will now take place on one-day's notice instead of 14, or 45, or even 120 days' notice. Cost support requirements will be eliminated, blanket Section 214 authority will be extended, and recordkeeping and reporting requirements will be eased.

We grant these additional freedoms on the basis of considerable evidence that AT&T lacks the ability to exercise unilateral market power in the overall interstate long distance market. This is not the same as saying that the interexchange market is perfectly competitive or that the need for all safeguards has vanished. Still, I believe we can appropriately declare AT&T to be "non-dominant" without causing injury to consumers or undermining important public policies, pending a rulemaking in which we will review issues common to all interexchange carriers.

In this regard, I want to commend AT&T for the assurances set forth in its letters of September 21 and October 5, 1995. Although they do not bear directly on the question of AT&T's dominance, these letters tender voluntary commitments on a number of important subjects for varying periods of time.

Most importantly, AT&T has pledged to offer certain pricing options for residential service that will safeguard the interests of low-income and low-volume subscribers. Also, the principle of rate integration for Alaska and Hawaii will be protected, and the Commission will have the opportunity to oversee any deviations from the traditional practice of geographic rate averaging. Rate increases for analog private lines and 800 number directory assistance will be constrained to the inflation rate. Large commercial customers, including resellers, will be able to protect their expectations against disruptions that might otherwise occur under the "filed rate doctrine." Arbitration procedures will be available to speed the resolution of complaints.

In these and other ways, AT&T has facilitated our decision to move away from "asymmetric" regulation of interexchange carriers. In so doing, we abandon some rules that may function more as hindrances to true rivalry than as consumer safeguards. Yet, even as we continue our efforts to eliminate unnecessary regulations, we must not and will not abandon our public interest responsibilities.

To this end, we will soon initiate a proceeding to review the rules that apply to non-dominant carriers generally. This will enable us to explore which minimally burdensome "rules of the road" should be applied to all carriers. It's essential that we maintain an environment that is hospitable to the continued growth of competition.

We are at a pivotal stage in the evolution of communications markets and common carrier regulation. In long distance, there is now considerable competition -- attributable in part to the long-range vision and steadfast determination demonstrated over the years by our predecessors at the Commission. Now, although this market continues to warrant some degree of attention, our priorities must change.

We can and should be less involved with the interexchange marketplace. There are other markets where competition remains an enticing potential, not a promise fulfilled. In particular, we are necessarily focusing more of our attention on expediting the emergence of competition for local voice and video services. I will work diligently toward the day when genuine, robust competition in local markets permits us to take such significant strides as the one we take today in the case of AT&T.